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Research Highlights 2010: Environment and Energy

Improving long-term sustainability of economic development, particularly outcomes for the world’s poor, depends on balancing the environmental impacts of energy development, water availability, and natural resource degradation with economic development.

Themes

Research on environment and energy supports the World Bank’s goal of sustainable development. The research program examines the economic drivers of renewable energy and energy efficiency, policies for reducing emissions of greenhouse gases and risks from climate change, water resource management, improved efficiency in the electricity sector, and the economywide value of environmental wealth.

Research on the effects of climate change on sea level, storm surges, and rainfall explores a wide range of investment and policy decisions for protecting coastal areas and managing river basins. Research on the energy sector examines tradeoffs for improving economic efficiency and controlling greenhouse gas emissions. An important component of the work on infrastructure assesses impacts of inter-regional transport improvements on trade flows and economic performance.

Highlights

Intangible wealth is an important factor in the growth and development of nations

One of the puzzles of national wealth accounting is that the value of tangible assets—fixed capital and land—is a smaller multiple of national income than expected given realistic rates of return. New and more comprehensive national wealth measures indicate that while intangible wealth, including a number of environmental assets, is not measured in national accounts, it represents 60-80 percent of comprehensive wealth across most countries. Increasing environmental assets thus is one key contributor to the growth and development of nations.[1]

Cooperation on bilateral water treaties will depend on the variability of water supply

Significantly increased variability of water supply from climate change could have serious impacts on cooperation among countries sharing river basins. Cooperation is strengthened by closer diplomatic and trade relations, and a reasonable balance of economic power. The influences of degree of democracy and quality of governance vary among river basins.[2]

Electricity reform can mitigate unsustainable groundwater use in agriculture

Excessive groundwater extraction results from a large number of farmers having limited incentives to conserve. Electricity pricing reform can be used to address this problem as well as inefficient electricity use, by including in the electricity price a charge related to excess groundwater depletion as well as correcting existing electricity price subsidies and other distortions.[3]

Could Africa leapfrog in increasing access to electricity?

Cost-effective decentralized renewable energy will play an important role in expanding rural energy access and limiting global growth of greenhouse gas emissions. However, over the next roughly 20 years, grid connected conventional supply is likely to dominate in more densely populated areas where the majority of households reside, even when accounting for potential reductions in the cost of renewable energy.[4]

Expanding biofuels has mixed impacts across countries

International prices were affected by expanded biofuels production during the 2007-2008 global economic crisis although the magnitude of the effect remains uncertain. Looking forward, expansion of current-generation biofuels to meet established national targets likely would have adverse impacts on food supplies and prices, as well as increasing deforestation. However, the direction of GDP impacts would differ across developing countries.[5] Moreover, the greenhouse gas reductions from switching to biofuels from fossil fuels could be smaller for a number of years than the release of greenhouse gases through converting forest and pasture land to agricultural uses.[6] Meanwhile, the costs of “second-generation” biofuels using non-food biomass remain much higher than fossil fuel costs due to unresolved technical limitations.[7]

Adapting to climate change step-by-step in Bangladesh will cost less than doing nothing

Two-thirds of Bangladesh is less than 5 meters above sea level, and by 2050 the risk of coastal inundation from climate-related storm surges and sea level rise is likely to threaten severe harm to coastal populations and economic activity. Phased-in investments to strengthen dikes, improve drainage systems, protect infrastructure, and improve cyclone shelters and early warning systems, would cost much less than the added damages without adaptation measures. A phased-in approach can focus on robust risk-mitigation options with the highest returns.[8]

Environmental protection can be improved through public information disclosure and performance ratings for firmsInformation disclosure programs and environmental performance ratings can augment or even substitute for difficult-to-implement pollution regulation. In China’s Jiangsu Province, the “Green Watch” performance rating and disclosure program has led to greater pollution reduction among rated companies than non-covered firms, after adjusting for differences among firm characteristics. In addition, managers of firms with better ratings perceive positive impacts on their market competitiveness and overall market value, while managers of firms with bad ratings tend to perceive deterioration in their economic standing.[9]

“Connectedness” of infrastructure and institutions enhances regional growth, but regional disparities can remain

Positive spillovers from growth in one country to its neighbors are essentially absent in Sub-Saharan Africa. Infrastructure connectedness is especially significant for landlocked countries. Successful growth spillovers will depend on strengthening connectedness through improved transportation and other infrastructure, and strengthening institutional channels such as greater participation in trade agreements.

The importance of connectedness also is highlighted by China’s ambitious program of expressway network expansion over the past 20 years. While Chinese national income is estimated to be several percent higher than if the network had not been built, the expansion has not reduced regional or rural-urban income disparities. The disparities can shrink in the longer term, if infrastructure investments that promote urbanization and economic concentration are accompanied by policies that improve quality and access to basic public services in rural and lagging areas.[10]